China's successful SOEs adapt in a changing world

For the large, usually hard-to-change, clumsy-in-reaction State-owned enterprises, the capricious business environment since 2008 has been difficult.

Most of China's largest SOEs were established in the 1950s and 1960s. Now directly overseen by the State Assets Supervision and Administration Commission, 117 SOEs are at the "central level".

They cover industries such as energy, aviation, telecom and construction, each playing a pivotal role in the nation's development. And 38 of the 117 "central SOEs" are now on the Fortune 500 list, compared with 10 in 2005.

Wang Yong, the minister of SASAC, said the SOEs could take a still-larger share in the global market.

Wang also said SOEs will depend on innovation, management and business strategic planning for their growth.

However, since 2008, the global slowdown has been threatening the profit of most of these large corporations.

In the first five months of 2012, central SOEs generated 580.7 billion yuan ($91.3 billion) in profits, a decline of 7.8 percent year-on-year, according to the Ministry of Finance.

SASAC officials admitted that rising costs in energy supply, raw materials, and credit, along with foreign investors' sagging confidence, will make 2012 a tough year for the SOEs.

Earlier this year, SASAC asked SOEs to offset the effects of the global economic slowdown by speeding up their "strategic transformation" and technological upgrading.

Not all SOEs have been making equal progress since. But some have been using the time as an opportunity to learn - as to how to leverage their advantages, tap their potentials, and adapt to the new market environment.

In the process, they have increased their value, like China Power Investment Corp, or expanded collaboration with overseas partners, like China Huadian Corp.

In the resource-rich Huolin Gol in the Inner Mongolian autonomous region, China Power Investment, one of China's top five power generating corporations, is building one of China's largest electrolytic-aluminum bases near its gigantic pithead power plant.

Production of electrolytic aluminum is long considered a high power-consuming and high-pollution industry. If it were placed elsewhere, government approval would be difficult to get.

But for Lu Qizhou, general manager of China Power Investment, it is exactly to the company's advantage. Thermal power industry has been operating at a continuous loss because of rising coal prices and State control of electricity prices.

By integrating its pithead power plant with the higher value-added aluminum production, putting the power plant near the coal mine, and putting the aluminum production near the power plant, China Power Investment has found a new model of growth without having to wait for the government to raise the price of electricity.

From no other channel can the huge demand for electricity from aluminum production be satisfied more easily than connecting it directly with a large power station.

In that way, China Power Investment was able to stop its losses and see a turnaround instead.

"Electrolytic aluminum has become our new profit center, although it's not a traditional business of a power plant," Lu said.

In eastern Inner Mongolia, where China Power Investment keeps intense operation, there are large coal deposits. But most of the coal is lignite, low in its release of heat and hard for transportation and storage, Lu said.

Combining coal mining, electricity generation and aluminum production has raised the company's energy efficiency far higher than the industry average.

In 2011, electrolytic aluminum brought in 2 billion yuan profit for the company, while its thermal-power business saw a loss of more than 10 billion yuan.

At the same time, China Huadian Corp, also one of China's top five power generators, is building its advantage through new international collaborations.

Last year, China Huadian entered a joint venture with General Electric Co. to develop an aeroderivative gas turbine, a core device in distributed energy systems. Named Huadian GE Aero Gas Turbine Equipment Co, the venture has China Huadian contributing 51 percent of its registered capital of $100 million, and is scheduled to start operating in 2013 in Shanghai.

Distributed energy systems, also known as distributed energy resources, refer to the generation of energy from small energy sources. "It is the first step for us to introduce key distributed energy resources technology from the US," said Deng Jianling, a China Huadian vice-president.

The aeroderivative gas turbine is modified from the aviation engine and burns natural gas to create energy, capable of maintaining a high level of energy efficiency.

China Huadian has been developing distributed energy resources projects that help provide electricity for consumers from the company's nearby small power plants, thereby reducing energy waste during transmission.

It plans to establish 10 million kilowatt distributed energy resource projects by the end of 2020.

According to the National Energy Administration, by the end of 2020, the installed capacity of distributed-energy resources-based natural-gas generators is expected to reach 50 gigawatts, a tenfold increase from 2011.

Currently, China's largest distributed energy resources station is in Guangzhou University Town, operated by China Huadian, which enjoys millions of yuan in profit each year from an equivalent reduction of 100,000 tons of emission from a coal-fueled thermal power plant.

A report released by the World Bank earlier this year warned that China's economic growth will diminish over the next few decades unless China rethinks the dominance of government and State-owned assets in managing the economy.

In the soft-power race among emerging economies, China ranks No 1, benefiting from distinguished global image, integration and integrity, according to the 2012 rapid-growth markets soft-power index report of the consulting firm Ernst & Young, which was released in May.

The strength of China's soft power within the emerging world is primarily driven by the growth of its multinational corporations, increased tourism and the rapid expansion and ranking of its universities, Ernst & Young said.

baochang@chinadaily.com.cn

(China Daily 08/10/2012 page14)